Economic impact of the 2016 Kaikōura earthquake GEN and Transport Knowledge Hub Event, March 30, Wellington Dr Garry McDonald and Dr Nicola Smith
Kaikōura earthquake 14 Nov 2012 @ 12.02am Magnitude 7.8 @ depth of 15kms Multi-fault rupture event Tsunami at Goose Bay 6.9m±0.3m 2 deaths, by Feb 2017 $900 million of insurance claims Source: GeoNet Source: USGS Source: cathnews.co.nz
Outline Scope of work, timeline Measuring the Economics of Resilient Infrastructure Tool (MERIT) MERIT modelling and results Transport Business operability Tourism Bringing it all together Rebuild workforce Research agenda Source: dailymail.co.uk
Scope of work Rapid assessment of the economic impacts as part of the wider information response to support decisionmaking Understand the scale and extent of the Kaikōura event and impacts of response options Key focus on transport (road, rail, port), business operation (all industries), tourism (domestic, international), wider flow-on impacts Separate analysis of rebuild workforce requirements
Timeline 14 16 Nov Discussions with government (MoT, MBIE, NZTA)/research community 17 Nov 7 Dec Govt A3 factsheets (People, Networks, Freight, Port, Fiscal etc) Research Info sharing portal (Riskscape, Geotech, Landslides etc) 8 Dec Economic impact assessment work begins 40 hours 12 Dec 1 st A3 infosheets : transport, business operability, tourism, wider flow-on impacts, rebuild workforce (update to Ministers) 20 Dec 2 nd A3 infosheets & draft report: transport, business operability, tourism, wider flow-on impacts, rebuild workforce (update to Ministers) 27 Jan Final report including options analysis (60pp) (update to Ministers)
What is MERIT? Computer simulation model for assessing the economic impacts of disruption events 3 versions: inoperability (<1 wk), two-region (>1 wk), Auckland spatially explicit model Multi-regional covering 16 regions Daily time steps over 20 years Multi-agent including 70+ businesses/industries, households, government, investors, trade by 70+ commodities Reports direct, flow-on/cascading impacts (value added, income, employment and other indicators) Based on general equilibrium theory, adapted for business disruption response and equilibrium-seeking dynamics
Where is MERIT being applied? Single infrastructure disruptions Electricity (Vector, Transpower), Port (Lyttelton), Road (MoT, NZTA Transport MERIT Online ) Water (WaterCare, Wellington Water) Natural hazard event disruptions Alpine Fault (MCDEM) Auckland Volcanic Field (AC, AELG) Kaikōura (MoT/MBIE/NZTA) Wellington Fault (GW, WELG, etc) Currently being developed under the QuakeCoRE, Resilience NSC and through commercial contracts
General modelling process
NZ$2007m pa How does MERIT work? Direct impacts e.g. operability Outage maps & Impacted business MERIT flow-on impacts Reporting Sector Output - Auckland 200,000 150,000 100,000 50,000 0 8 8.25 8.50 8.75 9 Time Manufacturing Services Primary
Kaikōura modelling process Direct impacts estimated by MERIT sub-modules transport business behaviours tourism These transform event information (e.g. road closures, building closures) into MERIT input parameters MERIT then estimates wider flow-on effects for economy Reporting is net of established counterfactual Rebuild workforce requirements estimated using MBIE/ME s National Construction Occupations Model
Transport (background) Transport networks significantly impacted SH1 and rail line connecting upper North Island and Chch Kaikōura township isolated Container shipping from Centreport Transport analysis concentrated on quantifying the increased freight costs Accessibility issues for tourism operators covered by business inoperability and tourism modules Other potential impacts Loss of value of perishable goods due to time delays Supply-chain interruptions
Transport (info. & assumptions) Route Status for Disrupted SH Network, as supplied by NZTA on 23 Jan 17 State Highway Status as at 14-Nov-16 21-Nov-16 19-Dec-16 21-Dec-16 28-Feb-17 30-Apr-17 31-May-17 31-Jul-17 31-Oct-18 Waiau to Kaikoura (Inland Route) Options 1&2 closed closed Option 3 closed closed road open - functional road open - functional road open - functional road open - functional open open open open open road open - functional open open open open SH1 North of Kaikoura Options 1&2 closed closed closed closed closed closed road open - functional open Option 3 closed closed closed closed closed closed closed road open - functional SH1 South of Kaikoura Options 1&2 closed closed closed road open - road open - road open - road open - functional functional functional functional open Option 3 closed closed closed road open - functional road open - functional road open - functional road open - functional road open - functional Railways Main line north estimated to carry 1.12m tonnes all assumed to be freighted by road Centreport Disruption of 9 months (Options 1&2) and 2 years (Option 3) containers rerouted through other ports (mainly Tauranga, Auckland) Coastal shipping Assumed to be analogous to road, applied road freight margins open open open open
Transport (modelling) * Refer to NZTA s Transport-MERIT Online
Business operability (background) MERIT s Business Behaviours Model (Brown et al., 2015) calculates business operability operability = proportion of as normal production that can be maintained (0-100%) impacted by disruption sources from infrastructure (water, sewage, electricity, gas, phone, fuel) and non-infrastructure (premises, neighbourhood, staff) key theme is that businesses are adaptive, but the more severe the disruption the slower the recovery BBM based on data collected from survey of Canterbury businesses following Canterbury quakes
Business operability (info. & assumptions) Infrastructure Outage by Location (excl. road, rail, port) Area Geospatial definition Electricity (Days of Outage) Water (Days of Outage) Sewerage (Days of Outage) Stormwater (Days of Outage) Kaikoura Urban Area 8 4 5 2 11 3 11 1 Hanmer Springs Urban Area 1 5 0 5 0 0 Waiau Area Unit 2 6 1 5 0 0 Waiau - Rural Area Unit 2 6 12 7 0 0 Culverden Area Unit 1 6 0 5 0 0 Cheviot Area Unit 1 6 0 5 0 0 Ward Area Unit 5 9,4 14 8 14 8 14 1 Seddon Area Unit 3 10 3 10 0 0 Blenheim Urban Area 0 0 0 0 Picton Urban Area 0 0 0 0 Nelson Urban Area 0 0 0 0 Wellington Urban Area 0 0 0 0 Lower Hutt Urban Area 1 11 0 0 0 NB: Footnotes as per final report Adjustments to BBM model required for: (1) Centreport and KiwiRail operations (2) Whale-watching (3) Other Kaikōura tourism businesses (4) Wine manufacturing (5) Wellington building closures
1 week 7 weeks 3 months 6 months 12 months Pre-quake Value Ad ($2016mil/yr) 1 week 7 weeks 3 months 6 months 12 months Pre-quake Value Ad ($2016mil/yr) Impacts of Kaikōura Quake on Business Operability Kaikoura District Hurunui District % Loss to Business Operability % Loss to Business Operability Industry 1 Agriculture 0% 0% 0% 0% 0% 42 0% 0% 0% 0% 0% 211 2 Other primary 0% 0% 0% 0% 0% 2 1% 1% 0% 0% 0% 25 3 Food manufacturing 19% 8% 4% 0% 0% 0 19% 8% 4% 0% 0% 59 4 Wood and paper manufacturing 23% 9% 5% 0% 0% 2 11% 5% 2% 0% 0% 1 5 Other manufacturing 19% 8% 4% 0% 0% 2 15% 6% 3% 0% 0% 8 6 Utilities, construction & transport 34% 26% 5% 0% 0% 39 14% 6% 3% 0% 0% 76 7 Trade and hospitality 75% 37% 36% 35% 0% 27 14% 6% 3% 0% 0% 46 8 Finance, insurance, real estate & prof. servs 26% 11% 6% 0% 0% 19 16% 6% 3% 0% 0% 110 9 Government, education & health services 20% 8% 4% 0% 0% 9 12% 5% 2% 0% 0% 29 10 Other services 37% 17% 14% 11% 0% 7 18% 7% 4% 0% 0% 44 Marlborough District Wellington Region 1 Agriculture 0% 0% 0% 0% 0% 196 0% 0% 0% 0% 0% 221 2 Other primary 3% 1% 1% 0% 0% 128 0% 0% 0% 0% 0% 81 3 Food manufacturing 17% 7% 4% 0% 0% 419 0% 0% 0% 0% 0% 971 4 Wood and paper manufacturing 16% 6% 3% 0% 0% 9 0% 0% 0% 0% 0% 111 5 Other manufacturing 10% 4% 2% 0% 0% 79 0% 0% 0% 0% 0% 1,502 6 Utilities, construction & transport 11% 5% 3% 1% 1% 252 1% 0% 0% 0% 0% 4,030 7 Trade and hospitality 10% 4% 2% 0% 0% 239 0% 0% 0% 0% 0% 2,745 8 Finance, insurance, real estate & prof. servs 8% 3% 1% 0% 0% 494 1% 0% 0% 0% 0% 11,552 9 Government, education & health services 9% 3% 2% 0% 0% 227 1% 1% 0% 0% 0% 6,862 10 Other services 9% 3% 2% 0% 0% 217 1% 0% 0% 0% 0% 1,303
Tourism (background) Growth in both domestic and international tourism markets has been strong (up 15% and 6% for year ending Oct 2016) For last weeks of November and December, we estimated changes in tourism expenditure Required comparing actual spend with predicted spend Key data are EFTPOS and credit card transactions & MBIE Monthly Regional Tourism Expenditure Also needed to develop assumptions of tourism expenditure impacts into the future for MERIT
Estimated Impacts of Quake on Tourism Expenditure by Selected Regions Region North Canterbury Marlborough RTO Nelson Tasman RTO West Coast RTO Rest of South Island Wellington RTO Rest of North Island Total New Zealand Month (2016) Domestic Impact ($ 2016 NZ million) Impact (%) International Impact ($ 2016 NZ million) Impact (%) November -3 (-2.1,-4.3) -18% -5 (-4.6,-5.9) -40% December -8 (-6.6,-9.1) -35% -12 (-11.4,-13.3) -63% Total -11 (-8.7,-13.4) -28% -18 (-16,-19.2) -54% November -2 (-0.9,-3.3) -11% -1 (0.1,-1.9) -6% December -4 (-2.9,-5.9) -16% -2 (-1,-3.5) -11% Total -6 (-3.8,-9.2) -14% -3 (-1,-5.4) -9% November -2 (-0.2,-4.7) -8% 4 (5.6,2.9) 21% December -6 (-3.9,-9) -13% 4 (6.4,2.1) 13% Total -9 (-4.1,-13.7) -11% 9 (11.9,5) 16% November -1 (0.3,-2.7) -8% -1 (1.3,-2.5) -2% December -1 (1.1,-2.6) -3% -4 (-1.3,-6.1) -9% Total -2 (1.3,-5.3) -5% -4 (0,-8.6) -6% November -5 (-0.4,-10.3) -4% 17 (29,4) 8% December -16 (-10.2,-22.3) -9% 2 (22.4,-19.5) 1% Total -22 (-10.6,-32.6) -7% 19 (51.4,-15.5) 4% November -23 (-16.5,-29.1) -19% -3 (1,-7.8) -5% December -14 (-7.2,-19.9) -11% -1 (4.2,-6.9) -2% Total -36 (-23.8,-49) -15% -5 (5.2,-14.7) -3% November -31 (-9.6,-52.6) -4% 51 (80.2,20.5) 10% December -70 (-44.5,-95.5) -7% 66 (106.9,23.7) 10% Total -101 (-54.1,-148.1) -6% 117 (187.1,44.2) 10% November -73 (-30,-117.6) -6% 62 (117.9,4.1) 6% December -129 (-78.5,-180.2) -8% 51 (131.7,-34.4) 4% Total -202 (-108.5,-297.7) -7% 113 (249.6,-30.2) 5%
Tourism (info. & assumptions) Based on Tourism analysis we assumed for MERIT: International Tourism Expenditure (Canterbury) 11.5-12.7% loss to end of December 1.5% loss until road fully opens International Tourism Expenditure (Rest of NZ) 9% gain for first 1-2 weeks 3% gain December Rest of period, losses in Canterbury are gains for rest of NZ No attempt to change domestic tourism expenditures in MERIT (further development of tourism module required)
Bringing it all together in MERIT MERIT
Bringing it all together in MERIT Impacts on Gross Domestic Product/Value Added Regional Results 0-12 months Time Period After Event Total 12-24 Total (0-24 months (0-24 months) months) % change from ($ 2016 m) YE March 2016 0-12 months Time Period After Event Total 12-24 Total (0-24 months (0-24 months) months) % change from ($ 2016 m) YE March 2016 Total New Zealand 241,200-402 -62-465 -0.1% -418-95 -513-0.1% Canterbury 32,900-107 -10-117 -0.2% -117-20 -137-0.2% Rest of New Zealand 208,300-295 -53-348 -0.1% -301-75 -376-0.1% Industry Results Baseline GDP ($ 2016 m) OPTIONS 1&2 Estimated change in GDP Estimated change in Value Added ($ 2016 m) % contribution to GDP loss Estimated change in Value Added ($ 2016 m) OPTION 3 Estimated change in GDP % contribution to GDP loss All industries -382-57 -439 94% -396-91 -488 95% Agriculture 10,500-21 -9-31 7% -28-16 -43 8% Other primary 5,200-36 -7-43 9% -44-14 -57 11% Food manufacturing 9,500-115 -4-119 26% -139-28 -168 33% Wood and paper manufacturing 2,100-37 -2-39 8% -55-17 -72 14% Other manufacturing 14,400-86 2-84 18% -112-12 -124 24% Utilities, construction & transport 31,900 174-75 98-21% 286-33 253-49% Trade and hospitality 27,300-36 4-32 7% -42 2-41 8% Government, education & health services 35,000-87 22-65 14% -106 18-88 17% Other services 87,600-140 13-126 27% -156 9-148 29%
Bringing it all together in MERIT Estimated Contributions of Transport, Business Operability and Tourism to Total Impacts GDP impacts by component 0-12 months Time Period After Event Total 12-24 Total (0-24 months (0-24 months) months) Share of GDP impacts (%) 0-12 months Time Period After Event Total 12-24 Total (0-24 months (0-24 months) months) Share of GDP impacts (%) Transport - all New Zealand -151-58 -209 45% -167-97 -263 51% Canterbury -39-11 -50 43% -45-23 -68 49% Rest of New Zealand -112-47 -159 46% -121-74 -196 52% Business operability 1 - all NZ -274-3 -277 60% -279 1-278 54% Canterbury -52 1-51 44% -57 1-56 41% Rest of New Zealand -222-4 -226 65% -222 1-222 59% Tourism - all New Zealand 19 1 19-4% 19 1 20-4% Canterbury -17 1-16 14% -21 1-20 14% Rest of New Zealand 36-1 35-10% 40-1 40-11% Notes: 1. This includes supply-side impacts on tourism businesses OPTIONS 1&2 OPTION 3 Estimated GDP impacts ($ 2016 m) Estimated GDP impacts ($ 2016 m)
Rebuild workforce Workforce estimates based on National Construction Occupations Model Uses input data of construction investment (residential, non-residential, civil engineering) Applies a multi-regional input-output model to estimate direct, indirect and induced labour force requirements Model outputs are employment by 1022 occupation groupings Direct reinstatement costs were extracted from RiskScape model Estimates scaled upwards to match rebuild cost estimates provided by Reserve Bank
Rebuild workforce Construction Workforce Requirements (All Occupations, MEC years) by region Canterbury Region Rest of New Zealand Total New Zealand Year 1 Year 2 Year 3 Year 4 Year 1 Year 2 Year 3 Year 4 Year 1 Year 2 Year 3 Year 4 Option 1 Residential 200 200 600 600 800 800 Non-residential 300 300 3,500 3,500 3,800 3,700 Heavy and civil engineering 16,300 0 1,400 0 17,700 0 Total 16,800 500 5,400 4,000 22,300 4,500 Option 2 Residential 1,200 1,200 2,800 2,800 3,900 3,900 Non-residential 1,300 1,300 17,500 17,400 18,800 18,700 Heavy and civil engineering 24,500 0 2,100 0 26,600 0 Total 27,000 2,500 22,300 20,200 49,300 22,600 Option 3 Residential 400 800 800 400 600 1,100 1,100 500 1,300 2,600 2,600 1,300 Non-residential 400 900 900 400 900 1,800 1,800 900 6,300 12,500 12,400 6,200 Heavy and civil engineering 12,300 12,200 0 0 500 500 0 0 13,300 13,300 0 0 Total 13,100 13,900 1,600 800 1,900 3,300 2,900 1,400 20,900 28,300 15,000 7,500 MEC = Modified Employee Counts
Research agenda Displacement of Wellington workers Govt provisioning of services (SNZ, Archives, NZDF, GW), loss of productivity Business vulnerability aligned with government activities Particularly primary sector industry associations, head/national offices Coastal shipping dynamics Temporary re-emergence of coastal shipping; NZ Connect (KiwiRail, PoA, LPC & ANL Shipping), Mainfreight Port alternatives (eg. for RORO ferries), re-routing, freight handling, no. of berths, storage Just-in-time practices vs pricing what are the pinch-points? Role in rebuild and recovery
Research agenda Freight price dynamics Uncertainty lead to significant fluctuations in freight pricing over first month Speculation/opportunism vs realistic operational cost increases? What are the decision-making dynamics for freight pricing? Stockpiled and perishable goods Built structure failure and road disruption placed perishable stockpiled goods (wine, raw milk) at risk Need for primary sector resilience/disruption planning
Research agenda Economic of fear Prof Adam Rose on 9-11, up to half of economic impacts caused by fear Media, portrayal of impacts domestically, internationally (eg. Australian tourism market post Canterbury quakes) Information provisioning Openness and sharing of data between government and research community, different processes adopted possibly a richer picture with more collaboration IRD data protocols need to be established prior to an event for information release enabling risk identification, modelling calibration, learning on business adaptation and response
More information Economics of Resilient Infrastructure:- https://www.naturalhazards.org.nz/nhrp/hazard -themes/societal-resilience/eori Resilience National Science Challenge:- https://resiliencechallenge.nz/ (Annual forum tomorrow at Te Papa!) Transport-MERIT Online:- https://exchange.iseesystems.com/public/garrymcdonald/dem/index.html#page1 YouTube clip on Transport-MERIT:- https://youtu.be/irvd3pvzhhy
Questions